Gabriel Baker, a retail project manager at Nautilus Inc., demonstrates the Bowflex Hybrid Velocity Trainer at its Innovation Center in Vancouver. The company says new product innovation will be its foundation. Photos by Ariane Kunze/The Columbian Photo Gallery
The heartbeat of Nautilus Inc. may well sound like the hum of shoes against a treadmill’s belt. It is music to the ears of executives at Vancouver’s fitness equipment maker.
Testing and engineering facilities at Nautilus’s 28,000-square-foot Innovation Center nearly replicates the sound. Exercise equipment is tested for stress over time. Hydraulic machines press and push weights, and a wheel of metal feet mimics a heavyset runner on a treadmill.
New products and experiences, as well as the recent acquisition of Minnesota-based Octane Fitness, have helped the company double its sales from $193.9 million in 2012 to $406 million in 2016.
The maker of Bowflex and other household fitness machines has ramped up its research and development in recent years. Sales and marketing remains its biggest expense, but executives say invention is a “key element” for its future.
“We’re long-term focused,” said Chief Operating Officer Bill McMahon, who recently sat down for an interview with The Columbian. “We’re thinking about products today that will come out in 2020 and 2019. That means investing now to be ready for those products, and we need to stay consistent on that.”
Slimming down
Nautilus is perhaps Vancouver’s most famous brand.
Founded in 1986 and incorporated in 1993, Nautilus rose to prominence in the 1990s with resistance fitness machines carrying its whorl shell logo.
The company went public in May 1999 and rapidly acquired other brands like Universal and Schwinn Fitness, a division of the bicycle company. Sales were notably buoyed through late-night, 28-minute infomercials that helped make Bowflex a big name.
The recession proved the strength training company was vulnerable.
When money became tight, consumers trimmed budgetary fat, like gym equipment. Nautilus, whose products were well received but generally cost more than $1,000, particularly thrived on customers’ willingness to finance their purchases, McMahon said. But during the recession, customers and lenders both shied from consumer loans.
Nautilus posted annual losses every year between 2006 and 2010. Restructuring started in 2008, after the company was bought by New York-based Sherborne Investors. For one, Nautilus stopped building products for commercial gyms and cut its manufacturing segments.
“We owned factories; it was a lot of cash consumed,” McMahon said. “We realized, we’re pretty good at designing products, we’re pretty good at marketing products, and we’re very good at supporting products after the sale. But to be candid, we weren’t that great of manufacturers.”
Focusing solely on home gyms and selling direct to consumers, the company eventually cut 1,200 employees to a core 300. It also downsized from a 478,000-square-foot campus to a 51,800-square-foot headquarters as it rebuilt its muscle mass.
Picking up the pace
Though it resembles a Herbie Hancock music video, the testing center is an important cog in Nautilus’s machine.
As customers have changed, innovation has taken on greater importance. Spending on research and development, which includes engineering as well as consumer research, has more than tripled since 2012, rising from $4.2 million a year to $13.9 million.
Gesturing to an engineer at a workbench, McMahon said the new space is larger than the department’s previous home. The new space helps Nautilus put out more and better products.
“The beauty is, these guys can take ideas off the computer and make elements of them, if not the whole thing, come to life out here,” he said. “I can’t tell you how many times we look at something on paper and say, ‘That’s really cool, we should make that,’ and then we make it and say, ‘Oh, let’s never do that again. That doesn’t feel good at all.’ ”
Since 2013, Nautilus has launched about 15 new products per year, said Sid Nayar, chief financial officer. They hope to launch 25 new products in 2017. Nayar said the investment is owed to “a recognition that innovation is the key component to this business.”
“You can have all the marketing in the world, but if you don’t have a product that actually says what it’s going to do,” sales become harder, he said.
Innovation was a big motivation for the company’s $115 million acquisition of Octane Fitness last year. The Minnesota-based manufacturer not only had a presence in a higher-end fitness market, it also had a “very robust R&D group,” Nayar said.
Though executives said it could be months or years before they can measure the full impact of the Octane acquisition, filings with the U.S. Securities and Exchange Commission say it contributed $61.9 million in net sales in 2016.
Today, Nautilus employs 469, according to filings with the SEC.
Fitness industry future
Like most industries, the fitness industry has transformed with technology. Exercise equipment today can be integrated with smartphones, and wearable technology has grown.
For one, it has changed its sales and marketing strategies. Gone are the days of the infomercial, replaced by commercials lasting one minute at the most. Online sales have grown, too, especially through Amazon.
While Nautilus looks as though it may have to compete with more players – everything from active video games to YouTube workouts to the outdoors – industry experts say the overall fitness market has grown.
“People go to parks and play tennis or go online and play (video games). Those same people go to a boutique gym and go to (fitness) classes,” said Adam Sedlack, president of Torrance, Calif.-based UFC Gym.
That’s been true so far for Nautilus. Traded on the New York Stock Exchange as NLS, share prices hovered between 50 cents and $3.50 per share between 2009 and 2013. They have bounced back to trade at about $16.55 per share last week.
Nautilus has changed its products to reflect some generational changes. The Bowflex design itself has streamlined from a product that allowed young men to build a 20-inch biceps into one that also emphasizes muscle tone and calorie burn. About 85 percent of Nautilus’ sales came from cardio products.
Representatives declined to disclose sales figures for specific products for competitive reasons. However, its biggest products are cardio lines from Bowflex: Max Trainer and TreadClimber.
Still, the company’s bread-and-butter is always going to be convenience. The vast majority of its sales is still for households, designed to fit even in apartments and become a good, convenient way for people to stay fit.
“It’s about saving time, because you could get a Bowflex strength workout faster than you can find a parking spot at 24 Hour Fitness,” McMahon said.
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